With uncertainty looming around the future of Vendor Central and the likelihood of Seller Central becoming a viable option for manufacturers, we’re going to break down the differences between these two strategies.
Background
The explosive growth of online marketplaces over the last five years raises serious questions for many manufacturers. We are often asked: “should I sell TO Amazon, or open a brand store ON Amazon”. The default for many manufacturers is to sell to Amazon (Vendor Central), allowing them to take responsibility for resale. However, some manufacturers have the option to open their own seller store, implementing a direct-to-consumer (D2C) approach that leverages Amazon as a transaction platform. Soon, many manufacturers may be forced into Seller Central as we discussed HERE, but there are benefits to the model that all manufacturers should be evaluating.
Vendor Central
Most major brands whose products are currently sold on Amazon sell their product directly to Amazon through the Vendor Central platform (also called 1P or Retail). This traditional seller/reseller model allows manufacturers to fill weekly POs from Amazon, much like they would any big box retailer. While this method is familiar and comfortable, Amazon is actively turning 1P into a self service platform for many brands under $20M/year, decreasing the ease of use, and eroding margin as Amazon charges for support of its service.
Advantages
Ease of Implementation – For many manufacturers, change is incredibly challenging, especially when it requires a cross-functional initiative from finance, marketing, and sales. For this reason, many brands should stick to a Vendor Central model as an attempted change in strategy could jeopardize their book of business on Amazon.
Marketing – There are still marketing opportunities such as seasonal events and gift guides that are only available to Vendor Central customers. While the ROI on these events tend to be low, they are branding tools that are unavailable in the Seller Central platform. Amazon Media Group (AMG) is also a Vendor Central only service that large brands have successfully leveraged.
Content – While content on Amazon can be controlled through Vendor or Seller Central, it is still easier on the Vendor Central Platform This is likely to change with the rise of Brand Registry, but as of today, Vendor Central is still the easier route.
Disadvantages
Leverage – It has been well documented that Amazon is seeking to turn a profit in the historically unprofitable retail business. Amazon is actively shutting off marketing and purchase orders to unprofitable products, effectively holding manufacturers hostage if they do not provide requested price-downs.
Unknown Future – Vendor Central will continue to be viable for large brands who are leaders in their category. But for those who don’t have that luxury, Amazon will likely stop purchasing product altogether or reduce the quantity and items being purchased sometime in 2019.
Price Control – Amazon will match the lowest price on the internet, with few exceptions. Their tools will also crawl and match off-Amazon sellers. This makes it almost impossible for a brand to enforce a MAP or UPP policy and sell to Amazon through Vendor Central.
Seller Central
A relatively new approach to sell on Amazon for larger brands is through Seller Central (also called 3P or marketplace). Amazon’s Seller Central platform allows a brand to open their own store on Amazon and sell directly to the consumer. In this model, a brand can capitalize on Amazon’s audience AND control some of the purchasing experience for its customers. This strategy requires that the manufacturer owns the logistics of a direct-to-consumer business, including customer returns and complaints, but it often proves more profitable and less volatile than selling directly to Amazon through Vendor Central.
Advantages
Margin – For many brands and manufacturers, the cost of doing business on Seller Central is significantly less than Vendor Central. Margin improvements routinely eclipse 20% for our clients.
Control – Because sellers own their products and are selling to consumers, they control the price. This means that a manufacturer doesn’t have Amazon price matching off-Amazon offerings. While the seller MUST control resellers, price control is ultimately in the manufacturer’s hands.
Predictability – Seller Central is a platform, not a customer. This means that a brand knows their costs, and are not subject to vendor negotiations and other one-off changes to their business. Once a year, Amazon announces the prices to sellers, which includes a standard referral fee (usually 15%), storage fees and other charges that are then predictable for the coming year.
Disadvantages
Logistics – In a Seller Central model the manufacturer is responsible for the logistics of their store. This includes customer complaints, inventory control, and proper accounting practices for a direct-to-consumer model. Pick, pack and ship expenses can be supplied by Amazon or another third-party logistics provider, but it is a more complex than a traditional two-step sales model.
Margin – For some oversized or inexpensive items, Seller Central can be LESS profitable than an existing Vendor Central business. This is why every manufacturer should evaluate the financials and understand their options in both platforms at all times.
Vendor Control – For some manufacturers, their current status in Vendor Central can make it challenging to leave. With recent changes to Amazon’s Standards for Brands Selling in the Amazon Store, some brands who wish to leave will simply not be allowed to transition.
Every business is unique and the decision between Vendor or Seller Central is a big one. Contact us and we would love to help.
